Small company taxation review

[ChimpMaster]

Just wondering how the government would implement this for businesses that are already operating and have cash in their accounts. For example, retrospection wouldn't work due to corp. taxes, VAT etc already having been paid.

https://www.gov.uk/government/upload...l_03032016.pdf

[WordIsBond]

Can't imagine they'd try to make it retrospective.

In America, you can form an S corporation or a C corporation. The S corporation uses look-through. I think the requirements for the S-corp are significantly lighter, so a lot of smaller businesses use the S corp.

I could see them doing something similar here, where you have even more stringent reporting requirements for the current corporation setup, but they have a new kind of corporation-lite available. Maybe filing/accounting becomes so easy you could easily DIY under this new setup, but it uses look-through. The incentive would be for small companies to move to look-through by lessening their reporting requirements, but they pay a little more tax due to the look-through approach.

If there is compulsion for look-through, the existence of so many companies with a non-look through basis would be very, very hard to deal with. And to do it retrospectively would probably be impossible.

[jamesbrown]

And to do it retrospectively would probably be impossible.

It would be illegal. It wouldn't be "clarifying" an existing arrangement, it would be enacting an entirely new arrangement that would completely change the earlier accounts. You couldn't apply that regime retrospectively. Separately, they can, of course, change the existing regime in a way that impacts retained funds from earlier years (cf. the dividend tax).

If they were to introduce something like this, it would be forward looking. However, it's another one of those things (along with NI reform) that's easier said than done. I don't see it on the near-term horizon, but perhaps 5-10 years out. I've been reading stories about this for the last decade, at least, and it goes all the way back to the apportionment rules in the 70s.

[ChimpMaster]

Separately, they can, of course, change the existing regime in a way that impacts retained funds from earlier years (cf. the dividend tax).

This is what concerns me because I (perhaps like many contractors) am "saving for retirement" in my Ltd. I eventually want to quit IT, liquidate and put my hard earned into something worthwhile.

[jamesbrown]

This is what concerns me because I (perhaps like many contractors) am "saving for retirement" in my Ltd. I eventually want to quit IT, liquidate and put my hard earned into something worthwhile.

Yes, I know and agree. Taxation review aside, you're basically at the whim of gov't on this one. They can easily introduce one-off measures, such as changes to the TiS legislation or other legislation that could materially impact the value of your retained funds upon distribution. Generally speaking, this sort of change comes with a warning (so you'd have time to react). They rarely implement major changes that come into effect immediately on budget day/AS.